Standard inclusions in insurance: Long way to go?

Even if IRDAI allows genetic diseases to be included in coverage, premiums will be very high in initial stages

This week the Delhi High Court said that insurance policies cannot exclude genetic disorders. The order came in the wake of a claim by an individual against United India Insurance. Further, the insurance regulator Insurance Regulatory and Development Authority of India (IRDAI) was also asked to make changes to ensure that genetic diseases are covered, in a move that could lead to additional regulations to enforce this.

Insurance works on a principle of probability. The premiums are fixed by the probability of an event occurring in the life cycle of an individual, meaning, the more probable an incident is, the higher the premium. In the absence of a complete standardisation of medical terminology and procedures, rates are determined by the data collected by each insurer, which is further approved by IRDAI.

Insurers that Moneycontrol spoke to said that even after the regulator makes changes in the definitions to allow inclusion of genetic disorders into insurance products, premiums will remain high. Citing the instance of a negative bias towards healthy customers in the pool who will suffer if policyholders with genetic diseases are allowed in, insurers said that the latter will have to pay significantly more.

There are two opposite scenarios that the industry has seen in the past. Cancer and HIV/AIDS had become the most commonly excluded diseases across policies. It was a given that customers with these pre-existing conditions would be denied a cover. But with a wide prevalence of Cancer across the country, insurers started to collect sufficient data on the causes and possible treatments.

Now, almost all general, health and even a few life insurers offer Cancer products, some of which even cover already-contracted diseases. However, HIV/AIDS, due to absence of data and the associated stigma with it (sexual contact is one of the ways the disease can be contracted), led to higher risks associated with it. Despite IRDAI bringing out a note to allow coverage of this disease, several insurers continue to deny covers and barring Star Health, no other insurer brought a disease specific cover for it.

Similarly, for genetic disorders too insurers were unable to procure adequate data to price products. On the other hand, IRDAI norms allowed them to be excluded.

A standard definition of inclusions of pre-existing conditions like genetic diseases and other ailments like skin cancer (which is excluded from many cancer-specific products) and certain psychological disorders could be a good starting point. When it will be done and whether the prices quoted by insurers is to be seen. Bringing clarity on these products and pricing caps if any could be one of the biggest tasks for the new IRDAI chairman who is yet to be selected.